Economics and the Ordinary Person: Re-reading Adam Smith

By Sam Fleischacker

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“Far more important to Smith’s work is the belief that ordinary people normally understand their own interests without help from politicians or professional philosophers.”

“The Wealth of Nations is a stupendous palace erected upon the granite of self-interest.”1 So wrote George Stigler, and he represents the majority view over the last two centuries. But the majority view is wrong. To claim that Smith’s Wealth of Nations (WN) is grounded on the assumption that people inevitably act out of self-interest, and to imply that the book’s major contribution grows out of that assumption, is to misread it severely. Everything Smith says about the importance of self-interest is quite humdrum, for his day: he rejects Mandeville’s cynical reduction of all human motivations to self-interest, is a greater believer in the possibility of concern for others than Hume, allows more room for sincere religious faith than Voltaire, and differs barely at all from the gentle Hutcheson on the role of self-interest in economics.

Far more important to Smith’s work is the belief that ordinary people normally understand their own interests without help from politicians or professional philosophers. The distinctive mark of Smith’s thought is his view of human cognition, not of human motivation: he is far more willing than practically any of his contemporaries to endorse the ability of ordinary people to know what they need to know in life. And it is this view that explains both much of Smith’s philosophy, and the degree to which his politics anticipated modern libertarianism.2

“It is the highest impertinence and presumption… in kings and ministers, to pretend to watch over the oeconomy of private people, and to restrain their expence either by sumptuary laws, or by prohibiting the importation of foreign luxuries. They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expence, and they may safely trust private people with theirs.” (WN II.iii.36; 346. Online: par. II.3.36.)

In Smith’s time it was widely held that ordinary people needed guidance from their “betters”—from the wise and the virtuous—and that a good political system would both try to restrain the lower classes from self-destructive behaviors (drink, wearing luxurious clothing) and provide instruction in religion and virtue. For many years Smith himself occupied a chair in moral philosophy that had been established by the Scottish government precisely to help underwrite public morals, yet he ultimately rejected the idea that this was a proper function of government. He also rejected the idea that governments need concern themselves with the drinking habits of poor people or have any business passing sumptuary laws to restrain how poor people dress.

“The man of system… is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it…. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it.” (TMS VI.ii.2.17; 233-4. Online: par. VI.II.42.)

These are but specific examples of a central commitment, running through all of Smith’s work, to vindicating ordinary people’s judgments, and fending off attempts by philosophers and policy-makers to replace those judgments with the supposedly better “systems” invented by intellectuals. In his “History of Astronomy,” Smith characterizes philosophy as a discipline that attempts to connect and regularize the data of everyday experience. In his Theory of Moral Sentiments (TMS), he criticizes several philosophical theories of morality for not attending properly to the way moral sentiments are actually experienced. And in both TMS and WN he condemns those entranced by “the love of system,” those who want to impose their own vision of how the human world should work on the people who actually live in that world. Smith’s account of moral and political cognition is strikingly egalitarian: experts know less than they claim to know, and ordinary people know more than they seem to know, about what will best promote the human good.

This egalitarian view of human cognition provides the essential premise for Smith’s arguments against government interference with the economy. Smith’s teacher Hutcheson, Smith’s rival James Steuart, and many other political economists, did not share Smith’s confidence in ordinary people’s judgment, and therefore looked to a government where the wise would guide investment, and control the labor- and consumption-choices of the poor. For Smith, by contrast, the decisions made by individuals in their own local situations—all individuals, even the poor and uneducated people regarded with so much disdain by Smith’s contemporaries—will almost always more effectively promote the public good than any plan aimed directly at that good. And the decisions individuals make about their own moral problems will also normally be at least as wise as any they would come to if they were guided, morally, by their political leaders.

This unusual emphasis on the soundness of ordinary people’s thinking has far-reaching consequences for how we understand Smith. First, if Smith believes that good philosophical and scientific work should be rooted in common sense, then we should not expect him to approve of an economic science, like the one we have today, carried on in a highly abstract and technical jargon. Nor is his own work written that way. WN was admired in its day for its great clarity, and for its avoidance of detailed calculations in favor of historical narrative.

Second, a moral philosophy rooted in common sense is unlikely to endorse a counter-intuitive view of human nature, and Smith in fact combats the counter-intuitive views of his predecessors and colleagues. This is one reason why he rejects the notion that human beings are thoroughly selfish, put about by Hobbes and Mandeville. But for the same reason he rejects the idea that human beings ever were or ever will be capable of the passionate altruism or patriotism on which utopian thinkers pinned their hopes (Thomas More before Smith; Rousseauvians in his time; Marxists later on).

Third, and perhaps most importantly, Smith’s distrust of the ability of “systems”—whether philosophical, religious, or political—to improve human beings goes with a belief that what really provides us with moral education are the humble institutions of everyday social interaction, including the market. The foundation of all virtue for Smith is “self-command,” the ability to control our feelings, to restrain our passion for our own interests and to enhance our feelings for others. But we achieve self-command only after the disapproval of others has led us to develop a habit of dampening our self-love. The first great “school of self-command,” says Smith, is the company of our playfellows, who refuse to indulge us the way our parents do; when we are adult, the major arena in which we need constantly to attend to the interests of others, and restrain our self-absorption, is the market. When I try to strike a bargain with someone else, and especially when I try to hold down a regular job, I need to try to meet other people’s needs instead of just bleating about my own:

[M]an has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favor, and shew them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this…. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our own necessities but of their advantages. (WN I.ii.2; 26-27. Online: par. I.2.2.)

The point of these famous lines is not that my butcher and baker are self-interested but that I know how to “address” that self-interest, that I know how to “shew them that it is for their own advantage” to do something that will help me. But my ability to address their interests takes me beyond myself, whatever it does to them; I must go beyond my own self-love in order to enlist theirs in my aid. And it is that ability to restrain our own self-love, and understand and further the interests of others, Smith says, that distinguishes human beings from other animals. So participation in the market fosters human character, helps us develop a trait crucial to our ability to be courageous, kind, or in any other way virtuous.

This respect for the market, as a tool for character development, is unusual among moral philosophers: most of Smith’s predecessors, peers, and successors would have favored the political realm, instead, as the best place to develop character. Smith has a much darker view of politics. If I participate in the political arena, I am likely to be constantly under the pressure of professing a greater concern for “the public good” than I really feel: constantly under pressure, therefore, to be a hypocrite. I will also, more generally, be far too concerned with what people think of me rather than what I am really like. For reasons like these, Smith was far less convinced of the value of politics to morality than were either his ancient predecessors—Plato, Aristotle—or his contemporaries Hutcheson and Rousseau. He was indeed quite cynical about the likelihood that politicians would normally be particularly good people, or that good people would be attracted by the political life.

“When the toll upon carriages of luxury… is made somewhat higher in proportion to their weight, than upon carriages of necessary use, such as carts, wagons, &c. the indolence and vanity of the rich is made to contribute in a very easy manner to the relief of the poor.” (WN V.i.d.5; 725. Online: par. V.1.75.)

and:

“A tax upon house-rents… would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be any thing very unreasonable. It is not very unreasonable that the rich should contribute to the public expence, not only in proportion to their revenue, but something more than in that proportion.” (WN V.ii.e.6; 842. Online: par. V.2.71.)

It follows from this, and from Smith’s belief in the capacity of ordinary people to run most of their affairs by themselves, that governments can and should play a smaller role than other political thinkers have imagined. I argue in my new book, On Adam Smith’s Wealth of Nations: A Philosophical Companion, that it is Smith’s view of the abilities of ordinary people, and not his view of distributive justice (he rather favored transfers from the rich to the poor, and certainly did not think that property rights forbade such transfers), that led him in the direction of libertarianism.

All this is not to say that common sense is incorrigible, or that the way ordinary people live should proceed entirely without interference by a government. Smith believed that ordinary people do labor under certain prejudices and superstitions, both about morality and about economics—the common prejudice against merchants is one of these—and he dedicated his own work in good part to exposing the fallacies beneath these beliefs. But he thought that the way to combat deluded or corrupt common sense was by way of clearer and more thoughtful common sense: he criticized our ordinary ways of thinking “from the inside,” we might say. He also believed it to be obvious—a correct part of common sense—that all societies need a government to carry out some functions which individuals, left to themselves, would not adequately handle. Among these are defense and the administration of justice, of course, but also what today we would call “public goods”: institutions, like universal education, which can be of great benefit to the society as a whole but in which individuals will never have enough of a personal stake to maintain by themselves.

This conception of the role of government leaves plenty of room for people on the left (welfare liberals) as well as the right (libertarians) to make a reasonable claim that they are heirs to Smith, although Smith would certainly oppose state socialism and would probably regard such movements as anti-globalization as deeply misguided.3 Smith’s conception of the limitations of common sense also leaves plenty of room for social science of a variety of kinds, although Smith would again surely resist some of the more ambitious projects social scientists have taken on, some of their more outrageous attempts to rewrite large chunks of what we believe in ordinary life.

As regards both politics and science, Smith’s great legacy was a lesson in humility. Smith’s view of the daily practice of politics was a pessimistic one, discouraging to those who think a superior, enlightened class of human beings might one day lead us all into a better world. And Smith’s social science was designed to explain to us how it is that even ordinary people understand the economic circumstances immediately around themselves quite well while not even experts can possibly know enough about entire national economies to pick out their strengths and weaknesses in any detail. In both of these respects, Smith urges us to reconcile ourselves to our limitations, to abandon the hope of bringing our social worlds firmly under our control. That sobering message is, I believe, as important as anything else he had to teach.

For a fuller exploration of this point, see Parts I and II of my commentary on the philosophical underpinnings of the Wealth of Nations: Samuel Fleischacker, On Adam Smith’s Wealth of Nations, (Princeton: Princeton Univ. Press, 2004).

I discuss Smith’s legacies for the left as well as the right in the Epilogue to On Adam Smith’s Wealth of Nations.

*Sam Fleischacker is Professor of Philosophy at the University of Illinois, Chicago. His most recent books are A Short History of Distributive Justice (Harvard, 2004) and On Adam Smith’s Wealth of Nations: A Philosophical Companion (Princeton, 2004).

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